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Cabinet readies for listing of PSU insurance firms

Sept 9, 2016

The government's plan to list public sector general insurers is gaining momentum with additional details such as business numbers and financial projections being sought from these insurers. A note is currently being prepared for the listing proposal to be presented before the Cabinet.

In his Budget speech, Finance Minister Arun Jaitley said the general insurance companies owned by the government would be listed on stock exchanges. He had said public share-holding in government-owned firms was a means of ensuring higher levels of transparency and accountability.

Apart from the sole domestic reinsurer General Insurance Corporation of India (GIC Re), the four public-sector insurers are New India Assurance, United India Insurance, Oriental India Insurance, and National Insurance.

"Details on our financial performances, business growth as well as future expectations from business have been sought by the ministry officials. They have also asked for information on any future areas of growth," said a senior public-sector general insurance official. Sources said the listing process and timeline would be finalised over the next few weeks. It is expected that the process will reach its advanced stages by the end of this financial year. New India Assurance could become one of the first candidates for listing, based on financial performance.

Cabinet readies for listing of PSU insurance firms There have been discussions in the past between the finance ministry and these insurers on their possible listing. It is anticipated that New India, which is among the largest in the public sector, could be the first to be taken to the listing path.

For the first quarter ended June 30, 2016, New India collected global premium of Rs 5,263 crore, with a growth rate of 14.7 per cent. Its profit after tax stood at Rs 218 crore and net worth including fair value at Rs 31,232 crore. Once the Cabinet nod is given, these insurers will internally begin to finalise all the processes and also appoint external consultants to ensure a smooth transition.

However, underwriting losses remain an area of concern for these insurers especially in segments such as health and motor third-party insurance. Once they get closer to listing, the focus would be to reduce these losses significantly, said public-sector insurance executives.

Listing will not only involve overhaul of existing processes. Experts say in the run-up to the initial public offering (IPO), the way these insurers function would have to undergo a change. While corporate governance practices are already in place, there will be more pressure on top management to refine it, say experts.

According to data from the Insurance Regulatory and Development Authority of India (Irdai), underwriting losses increased 23 per cent year-on-year from FY14 to FY15. Insurers said that on an average, there is a 20-30 per cent rise every year in underwriting losses. Public-sector insurers have seen a bigger impact of this due to the large volumes of business they underwrite every year. Among the segments, fire and property are seeing a rise in losses, especially with large claims as well as undercutting to retain clients. Similarly, the group health segment has also seen losses pile up because of heavy discounts to existing corporate customers.

Source: Business Standard

IRDAI chief calls for debate on insurance portability

Sept 9, 2016

The Insurance Development and Regulatory Authority of India (IRDAI) today said insurance portability will be the next big issue the industry should take up.

IRDAI chief T.S. Vijayan said there is no initiative from the regulator on the issue of portability, but he wants the idea to be debated in various forums.

"Currently, portability is available only for health insurance policies. The portability (of insurance policy) is possible only if the policy is standardised. If different clauses are there, the first attempt is to make it (policy) simple and standardise the policy," Vijayan told reporters on the sidelines of a programme.

"There is no road map (for insurance portability). Digitisation of policy is the first step. Once that is done, we can think of it."

He favoured the idea of people discussing it, "then only it can emerge". "I don't say tomorrow we are going to bring that. No. We will have to ignite the thought process," Vijayan told reporters on the sidelines of a programme.

He felt that the portability would help people rate or rank the company services and choose the better one.

Vijayan said sale and servicing of insurance policies through e-commerce platform will be available from October 1.

"We want to make this mandatory for high commercial policies. If a customer wants, the company has to provide it. We want to start this from October 1 onwards," he disclosed.

His assessment is the insurance sector in the country is growing well as health insurance is pacing up at a clip of 31 per cent. The life and non-life insurance segments are expanding at about 15 per cent.

Source: The Economic Times

6 important changes brought about by new health insurance rules

Sept 7, 2016

Regulations play an important role in defining the growth and future of any industry. Recently, the Insurance Regulatory and Development Authority of India (IRDAI) introduced (Health Insurance) Regulations, 2016, replacing the rules set in 2013. The six important changes brought about by the regulations are:

* Combi plans can be a mix of any life (earlier only term plan) and health plan

* Cumulative bonus in benefit plans allowed

* Wellness benefits

* Insurers have been asked to launch pilot products

* Standard declarations format can be flexible and insurers may design them independently

* Life insurers will not be allowed to offer indemnity-based products

Let's take a look at the implications of each of them:

Combi plans can be a mix of any life (earlier only term plan) and health plan

In December 2009, IRDAI had come out with the guidelines for combi plans that would allow a life and a non-life (or a standalone health) insurer to enter into an agreement to offer such plans. Recently, IndiaFirst Life Insurance announced a collaboration with Star Health Insurance to introduce Star First Combi Plans - a combination of health and life insurance plans. It was a mix of a pure term and a health plan. From now on, a combi plan can be a hybrid of any life (endowment, money-back or Ulip) and health plan. "While the customer enjoys clubbed product benefits and unmatchable ease by managing two different plans through a single policy, the agent gets the satisfaction of offering a full package to its customers", says Vishakha R M, Managing Director & CEO, IndiaFirst Life Insurance.

Cumulative bonus in benefit plans allowed

Currently, cumulative bonus is not a feature in defined benefit policies such as critical illness plans. Going forward, it will be offered and explicitly stated in the prospectus and policy document. The addition of cumulative bonus increases the sum insured over a period of time and helps in meeting a higher treatment expense in future. But, will there be a corresponding increase in the premium of critical illness plans? Ashish Mehrotra, MD & CEO, Max Bupa Health Insurance, informs, "It will help customers grow their sum insured over the years and the corresponding increase in the premium will be insignificant."

If, however, a claim is made in any particular year, the cumulative bonus will be accordingly reduced. For every claim-free year, the sum insured is increased by a certain percentage, say 10 per cent, up to a maximum of about 50 per cent of the initial sum insured. This additional increase is the cumulative bonus that accrues to the policy.

Wellness benefits

Health insurance premium is largely a function of age and sum insured, followed by health maintenance and healthy habits. The guidelines to reward policyholders with an early entry and continued renewals were already present in the IRDAI guidelines of 2013. To incentivise healthy lives, the recent guidelines stress on rewarding policyholders on the basis of preventive and wellness habits by disclosing upfront such mechanism or incentives in the prospectus and the policy document. "This type of benefit might help customers in monitoring and improving their health. On the other hand, the insurer recognises the same and offers discount on the renewal premium," says Mehrotra.

No discount, however, will be provided on any third-party service or merchandise. For instance, insurers can't offer discounts on a health club's membership just because they have a tie-up with the club. Instead, discounts in premium or on diagnostic or pharmaceuticals or consultation services of providers in the network will still be allowed.

Insurers have been asked to launch pilot products

This new initiative may usher in a new wave in the insurance industry. IRDAI has allowed insurers to test the water by launching 'pilot products'. Close-ended with a one-year policy term, the products will be offered only by general or health insurers for just five years initially. The product can be withdrawn or rolled over into a regular one. The idea is to cover risks which have not been covered by insurers till now. Such experiments, however, should not be detrimental to the interests of policyholders. Mehrotra says, "While the insurers have the flexibility to withdraw or continue the product after 5 years, the regulator has protected the interest of the customers by putting an obligation on the insurance companies to port the customers of pilot policies to an existing product of a health insurer. This will provides customers continuity benefit and at the same time encourage insurers to innovate more and test new products."

Proposal form can be flexible and insurers may design them independently

All insurance companies, including life, general and health, can now have their own proposal form with separate set of standard declarations as part of it. The regulations, however, strictly prohibit any explicit or implicit consent of prospective buyers to part information with third-parties.

Life insurers are not allowed to offer indemnity-based products

From now on, life insurers will not be allowed to offer indemnity products. For existing policyholders, however, the policy shall continue until the expiry of the respective policy term. But won't their claim experience be hit if new policies can't be sold? "Actuarial assumptions take into account several factors, including continuity of a product and the volume of business. As a prudent insurance company, we create adequate reserves to meet expected claims liability to ensure there will be no adverse impact on the servicing and claims processing of existing policyholders", informs Vishakha.

Indemnity plans are health insurance policies such as mediclaim which reimburse the actual hospital expense incurred, i.e., indemnify the policyholder. Few years back, life insurers had started offering such plans, but now IRDAI has put brakes to it. Non-life and standalone health insurers will, however, continue to offer them. Importantly, life insurers may still offer defined-benefit health plans such as critical illness plans in which a lump sum amount, irrespective of the actual hospital expense, is paid to the policyholder. Life insurers have also been asked to not offer single premium health insurance product under unit linked platform.

Conclusion

One should ideally have adequate health insurance cover for not just oneself, but the entire family as well. Young families may opt for family floater health covers where children up to the age of 25 are covered. At around age 40, one may consider buying a critical illness cover. Keep reviewing the amount of coverage every 3-5 years and, more importantly, maintain a healthy lifestyle.

Source: The Economic Times

Car insurance: 4 ways to get the most out of your cover

Sept 7, 2016

Insurance companies offer two types of motor insurance cover. One is the liability-only policy, which covers third-party liability for bodily injury or death and property damage. The other is a package policy, or comprehensive cover, which covers loss or damage to the insured vehicle and the third-party liability.

Apart from these, insurers also offer a few add-on covers that provide policyholders many benefits. Such add-on covers are available for all private cars, two-wheelers and even commercial vehicles. So, before finalising on the add-on covers, one must take note of the total sum insured of the vehicle and the costs of the add-on covers.

Insured’s Declared Value

The total sum insured of a vehicle is known as the Insured’s Declared Value (IDV). In case of theft of the insured vehicle or in case of total damaged, the owner of the vehicle can claim the amount depending on the IDV. Insurers fix the IDV of the vehicle every year at the time of the renewal of the policy based on the year of manufacturing, selling price of the brand and the model and depreciation of the vehicle.

For arriving at the IDV, insurers calculate depreciation of the vehicle on a fixed formula: Vehicles up to one year is 15%, up to two years 20% of the original IDV, 30% for three years, 40% for four years and 50% for five years. For vehicles that are over five years old and of obsolete models, the IDV is determined on the basis of an understanding between the insurer and the insured.

A policyholder can opt for add-on covers to the basic vehicle insurance and the pricing is based on the IDV. However, policyholders must keep in mind that add-on covers are not applicable if the vehicle is used for motor rallying and if the vehicle is not being used or driven according to the applicable laws and regulations of the Motor Vehicles Act.

Zero depreciation

In zero or nil depreciation cover, the policyholder will get the full claim on the value of parts like plastic items, fibre, rubber, windscreen that are replaced in the event of loss due to accident. Most insurers offer zero depreciation for the first three years and some even offer for five years for higher premium.

Break-down assistance

This is a popular add-on cover at a very nominal cost, which takes care of the car in case of a breakdown or accident on the road. The policyholder will have to call up the designated helpline number of the insurer and help will reach him. It covers the replacing of flat tyres, alternate battery, alternate key, towing vehicle, and even emergency fuel and alternative vehicle.

Engine cover

It provides protection to the engine in case of flooding as hydro-static lock is a major causes of engine failure. Since damage due to hydro-static lock, which happens if one repeatedly tries to run a moist engine, is not covered under a regular motor insurance policy, an add-on engine cover can be of great help.

Additional cover

* A person whose vehicle is registered with the RTA can take add-on cover

* Add-on covers are available for private cars, two-wheelers and commercial vehicles

* The premium for add-on cover is fixed based on the IDV of the vehicle

* Zero-depreciation and engine cover are the most popular add-on covers

* Add-on covers are not applicable if the vehicle is used for motor rallying

Source: The Financial Express

Economic growth can help deepen insurance coverage: Jaitley

Sept 1, 2016

Finance Minister Arun Jaitley today expressed the hope that India will become a fully insured and socially secured nation as economic expansion gathers momentum over the years.

"As the economy grows faster, I hope we will become a fully insured and socially secured nation over the years, and I am sure LIC can play a very big role in achieving this," Jaitley said, launching the Diamond Jubilee celebrations of the nation's largest financial powerhouse here.

Taking a potshot at central trade unions that have called for a national strike tomorrow to protest against labour reforms, among other things, he rued that his Budget proposal for contributory social security net had to be withdrawn due to opposition from all around.

He also recalled that how trade unions opposed the Seventh Pay Commission proposal to have a contributory social cover.

"But I have no doubt that one day we will realise the value of social security and insurance and we will one day become a fully socially secured nation," he said.

Lauding Life Insurance Corporation of India (LIC) for remaining the market leader with over 70 per cent market even after competition was allowed 16 years ago, Jaitley said: "I am glad that very few monopolistic institutions of the state have prospered in a competitive market environment and still continues to remain the market leader as LIC has done over the years."

Normally state monopolies find it difficult to survive in a competitive environment, as the private sector devoid of bureaucratic hurdles can take market-oriented decisions faster in such climate and thus thrive, "but LIC has been able to do so even after the liberalisation", he noted.

To retain its leadership, Jaitley asked the Corporation to be more and more innovative in its product offerings as well as nation building efforts so that it can continue to serve and achieve the objectives for which it was created way back in 1956.

Recalling the contribution of the Corporation to nation- building, Jaitley noted that LIC is the largest investor in our nation's growth story with over Rs 4 trillion (Rs 4 lakh crore) in investments into key sectors of the economy.

The Finance Minister also said, his counterpart at the Health Ministry is working on a plan to offer a health cover of Rs 1 lakh to the poor who form one-third of the population.

Meanwhile, outgoing LIC chairman SK Roy handed over a cheque of Rs 2,502 crore for last fiscal year, up from Rs 1,803 crore given in the previous year, to the Finance Minister as part of sharing its surplus with its owner.
Roy also announced that as part of the Diamond Jubilee

celebrations, the Corporation will pay a one-time special bonus to policyholders over and above the annual payout of its profit sharing.

As per the LIC Act, the Corporation has to share 95 per cent of its profit, which in LIC's parlance is called 'surplus' has to be shared with the policyholders and the rest with the government as its owner.

Accordingly, in 2014-15, LIC had paid Rs 34,283 crore as regular annual bonus to the policyholders.

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